Hi Mudit
I feel the context is different. For retail, the success depends on the location, parking, access etc
Thus having an appropriate location (and for long term) it makes sense to own the property (land or otherwise retail space)
In the long term, the saving in rentals (and escalations, etc) versus the cost of the asset ( and also the WACC) would come into play
Lastly it does increase the fixed assets, reduce some cost (increase in profit) so sort of balances the ROE/ROCE percentages
We also do need to consider whether this increases the liabilities ( LT loans) or from internal accruals
These are the factors to decide on the merits of owning versus renting
I recently visited a DMART store in Bengaluru, which has started selling as well(I donāt know since when they are selling it as I moved in to this area recently).
Pizzasā cost were really cheap(ā¹99 - ā¹159) and taste was decent. I even saw few people buying multiple Pizzas and taking them home. I think they are selling ~500 orders(not Pizza, but order) per day from that store only. So even if I assume ~ā¹200 / order, a single store is earning ā¹1L / day of revenue. Considering that they just have ~10SKUs(4-5 Pizza, all with same size + 4-5 cold drinks) and very low cost, this was really good to see. Public reviews are great too: DMart Pizza
If DMART will scale it to even 25% of their stores, it will add ~ā¹300 Cr of topline with ~20-30% of net margin without much hassle in next year. This seems like too good to be true to me. Please enlighten me if Iāve wrong assumptions here.
Disclaimer: I have extremely limited understanding of food sector and itās scaling challenges. People will working experience in this sector can suggest.
its been years here in hadapsar store of Pune city. started with ice cream softy cone, then added branded icecreams and popcorn etcā¦all at the exit gate of the store. so after shopping, one is exhausted and will look for something quick to eatā¦so yes it is a good idea as it seems to me.
I had also seen popcorns and ice-creams at few DMART stores earlier. But seeing them selling Pizza with itās volume and scale pleasingly surprised me!
So my view is different here. If you see the numbers of the food division which are published separately you will see that this division is not earning profit. I think this company is trying to build a reason for customers to visit their stores and do that by selling what customers and kids love to eat at prices where they will break even and what will keep attracting footfalls to the store. Long term I donāt think they are doing this to add to their profits but just make people come more to their stores
